Borrowers who are looking into debt consolidation usually have high-interest debts and pay a lot of money in interest charges. Consolidating multiple debts helps borrowers avoid interest rate hikes and late payments, making payments more reasonable.
The first step to consolidating multiple debts is to list all loans on paper. Include cashback credit cards, rewards credit cards, standard credit cards, car loans, mortgages, and other personal debts. Then write down the monthly payment amount, interest rate, and outstanding balance for each debt. This will help you decide which debts to consolidate.
There are two ways to go about consolidation – one is to refinance your mortgage, and the other is to take out a second mortgage. If you choose the first option, make sure you find a reputable company that offers debt consolidation loans with reasonable interest rates. Refinancing your mortgage is a second option, but you have to consider how much home equity will be left.
If you have multiple high-interest department store and other credit cards, you can transfer the balances to a low-interest card. You may apply for a credit card with a low introductory interest rate and make a balance transfer.
Before you try to consolidate, however, it is important to check your credit score. If your credit score is poor, you may not qualify for a debt consolidation loan with a reasonable interest rate. Be honest and think of whether you will be able to repay the new loan. The majority of borrowers who opt for a home equity loan or another type of debt instrument end up with a higher or the same debt load within 2 years.
What types of debt to include in a debt consolidation loan? This depends on interest rates, but you can include credit cards, unsecured auto loans, and other types of unsecured debt. In most cases, you will be offered a secured loan meaning that the loan will be secured against some valuable asset.
